Overview
Compass Point announced a reduction in its price target on Klarna (NYSE: KLAR), cutting the target to $30 from $45 and retaining a Buy rating. The firm cited Klarna’s failure to meet its fourth-quarter 2025 transaction margin guidance in the company’s first guided quarter as a public company, and an uncertain execution outlook that clouds near-term margins and profitability.
Stock movement and current valuation
The shares closed at $13.85, down from the prior close of $18.95, and are trading marginally above their 52-week low of $13.66. Compass Point noted the stock dropped roughly 22% intraday at the time of its report and said it expects the shares to remain under fundamental pressure for about two quarters.
Drivers of the margin miss
Compass Point pointed to several drivers behind the disappointing transaction margins. Provision growth was elevated after a nearly 200% December exit rate of fair financing, a dynamic that pressured results under CECL accounting. In addition, funding costs were reported as materially higher than the research firm had anticipated, which put further strain on adjusted operating income margin.
Because Klarna has been unable to reliably forecast how growth will affect its outlook, Compass Point described the high end of the company’s 2026 transaction margin guidance as unrealistic given current visibility.
Analyst outlook and rationale for maintaining Buy
Despite these headwinds, Compass Point kept its Buy recommendation. The firm expects the stock to recover in the second half of 2026, contingent on two developments: a favorable comparison to Walmart-driven growth and a normalization where revenue growth aligns with transaction margin expansion while provision expenses ease. The firm also noted that Klarna has reported 25% revenue growth over the last twelve months.
Company results and market reaction
Klarna Group PLC reported fourth-quarter 2025 revenue of $1 billion, representing 38% growth year over year. The company exceeded revenue forecasts but produced negative earnings per share, a factor cited as contributing to the negative investor reaction. The stock declined in pre-market trading following the release.
Third-party valuation notes
An InvestingPro analysis referenced in the context of the coverage suggests the stock may be undervalued at current levels. An InvestingPro tip also highlighted that the relative strength index (RSI) sits in oversold territory, which some investors may interpret as a potential rebound opportunity, particularly for patient holders.
Conclusion
Compass Point’s action reframes near-term expectations for Klarna, focusing investor attention on margins, funding costs, and provision dynamics driven by CECL accounting. While maintaining a positive stance over a longer horizon, the firm has signaled limited confidence in near-term guidance and anticipates fundamental pressure on the shares for roughly two quarters.